California Resources Corporation (NYSE:CRC), an independent California-based oil and gas exploration and production company, today reported a net loss attributable to common stock (CRC net loss) of $82 million, or $1.70 per diluted share, for the second quarter of 2018. Adjusted net loss1 for the second quarter of 2018 was $14 million, or $0.29 per diluted share.

Quarterly Highlights Include:

• Generated core adjusted EBITDAX1 of $337 million excluding the impact of $68 million of cash hedging losses and $24 million of stock-based compensation expenses
• Reported adjusted EBITDAX1 of $245 million including these items, and an adjusted EBITDAX margin1 of 38%
• Produced 134,000 BOE per day, above the midpoint of the guidance range
• Internally funded capital investments of $170 million
• Drilled 48 wells with internally funded capital and 35 wells with joint venture (JV) capital
• Implemented $15 million of annualized synergies from the acquired Elk Hills interests, well ahead of anticipated pace

2018 Outlook:

• Increased 2018 capital budget to a range of $650 million to $700 million (including approximately $100 million or more of JV funding), subject to further adjustments based on commodity prices in the second half of the year and other developments
• Incremental capital directed to drilling, workover and facilities projects in the San Joaquin, Los Angeles and Ventura basins
• Third quarter 2018 production guidance of 134,000 to 138,000 BOE per day
• Third quarter 2018 production forecast reflects CRC's return to a growth profile

Todd A. Stevens, CRC's President and Chief Executive Officer, said, 
"CRC is building sustained momentum as our experienced and pressure-tested teams continue to drive strong operational execution and as we take advantage of the breadth and diversity of our California portfolio. Our teams are driving improved efficiencies in the field and we expect to deliver value-oriented production growth through the second half of 2018. This is showcased by our ability to capture near-term synergies from the consolidation of CRC's flagship Elk Hills interests quicker than expected, in addition to solid production results we are witnessing from our drilling activity. Looking ahead, we are keenly monitoring crude oil fundamentals and commodity markets to flex our capital plans and enhance our 2019 cash flow performance. We expect our mid-cycle capital investment plan should maximize value creation through value-oriented production increases along with stronger EBITDAX growth into 2019, particularly with the modified hedging strategy."

Second Quarter 2018 Results

For the second quarter of 2018, the CRC net loss was $82 million, or $1.70 per diluted share, while adjusted net loss1 was $14 million, or $0.29 per diluted share. Adjusted net loss1 excluded $92 million of non-cash derivative losses and a net gain of $24 million on debt repurchases. These results compared to a net loss of $48 million, or $1.13 per diluted share, and an adjusted net loss of $78 million, or $1.83 per diluted share, in the prior year period. The 2018 results represented higher production and significantly higher realized oil and NGL prices offset by hedge results and higher production costs resulting from increased activity levels and equity compensation.

Total daily production volumes averaged 134,000 barrels of oil equivalent (BOE) per day for the second quarter of 2018, compared to 129,000 BOE per day for the same period in 2017, an increase of nearly 4 percent driven by the Elk Hills acquisition. This net increase included a 1,600 BOE per day negative effect on production volumes from our PSCs. For the second quarter of 2018, oil volumes averaged 83,000 barrels per day, NGL volumes averaged 16,000 barrels per day and gas volumes averaged 210,000 thousand cubic feet (MCF) per day.

Realized crude oil prices, including the effect of settled hedges, increased by $16.13 per barrel in the second quarter of 2018 to $64.11 per barrel from the prior year comparable period. Settled hedges decreased realized crude oil prices by $9.08 per barrel. Average realized NGL prices continued to be strong and registered $42.13 per barrel, reflecting a realized price that was 56% of Brent prices. Realized natural gas prices were $2.25 per MCF.

Production costs for the second quarter of 2018 were $231 million, compared to $216 million in the second quarter of 2017, an increase of $15 million primarily due to higher production from the Elk Hills acquisition of $12 million, and increased equity compensation expense of $5 million resulting from the stock price increase. On a per unit basis, second quarter production costs were $18.93 per BOE, compared to $18.34 per BOE in the prior year comparable period. Second quarter unit production costs were within the previously disclosed guidance levels, and would have been $18.52 excluding higher equity compensation expense or $0.56 per BOE lower on a sequential basis from first quarter 2018 unit production costs of $19.08. In line with industry practice for companies operating under PSCs, CRC reports gross field operating costs and only the Company's share of production volumes, which can result in higher production costs per barrel. Excluding this PSC effect, per unit production costs1 for the second quarter of 2018 would have been $17.41. General and administrative (G&A) expenses were $90 million for the second quarter of 2018, compared to $63 million in the first quarter of 2018 and $31 million higher than the prior year comparable period primarily related to higher equity compensation expense as a result of CRC's increased stock price. CRC's increased stock price added $19 million to the current year expense compared to the prior year period. The Elk Hills acquisition added another $3 million to second quarter 2018 G&A expense. The rest of the increase was mostly related to the timing of certain expenses.

CRC reported taxes other than on income of $37 million, $6 million higher than the prior year period largely due to higher property taxes as a result of commodity price increases. Exploration expense of $6 million for the second quarter of 2018 remained flat to the prior year comparable period.

Capital investment in the second quarter of 2018 totaled $170 million, excluding JV capital. Approximately $115 million was directed to drilling and capital workovers.

Cash provided by operating activities was $34 million, which included interest payments of $154 million. CRC's working capital use is larger in the second and fourth quarters of the year due to the timing of interest and property tax payments. CRC's free cash flow1 was $(136) million in the second quarter of 2018 after taking into account capital that was funded by BSP.

Six-Month Results

For the first six months of 2018, CRC net loss was $84 million, or $1.81 per diluted share, compared to net income of $5 million, or $0.12 per diluted share, for the same period of 2017. The 2018 results reflected significantly higher realized oil and NGL prices offset by hedge results and higher production costs resulting from higher activity levels, energy costs and equity compensation. The adjusted net loss1 for the first six months of 2018 was $6 million, or $0.13 per diluted share, compared with an adjusted net loss of $121 million, or $2.85 per diluted share, for the same period of 2017. The 2018 adjusted net loss excluded $99 million of non-cash derivative losses, a gain of $24 million on debt repurchases and a net $3 million charge related to other unusual and infrequent items. The 2017 adjusted net loss excluded $110 million of non-cash derivative gains, $21 million of gains from asset divestitures, a $4 million gain on debt repurchases and a $9 million charge from other unusual and infrequent items.

Total daily production volumes averaged 129,000 BOE per day in the first six months of 2018, compared with 131,000 BOE per day for the same period in 2017, a decrease of 2 percent. This decrease included a negative effect on production volumes from our PSCs of 2,000 BOE per day. Excluding production from the Elk Hills acquisition and the effect of PSC contracts, the decline from the first half of 2017 to the first half of 2018 was 4%, which is below CRC's previously reported base production decline range.

In the first six months of 2018, realized crude oil prices, including the effect of settled hedges, increased $14.35 per barrel to $63.47 per barrel from $49.12 per barrel for the same period in 2017. Settled hedges reduced 2018 realized crude oil prices by $6.88 per barrel, compared with an increase of $0.42 per barrel for the same period in 2017. Realized NGL prices increased 32 percent to $42.63 from $32.20 per barrel in the first six months of 2017. Realized natural gas prices decreased 6 percent to $2.51 per Mcf, compared with $2.68 per Mcf for the same period in 2017.

Production costs for the first six months of 2018 were $443 million, or $19.01 per BOE, compared to $427 million, or $18.02 per BOE, for the same period in 2017. The Elk Hills transaction added $12 million to the first six months' production costs, and the increase in equity compensation expense added $6 million, or $0.25 per BOE. Excluding these items, production costs were slightly lower in the current year period compared to the prior year due to efficiencies delivered. Per unit production costs, excluding the effect of PSC contracts, were $17.44 and $16.92 per BOE for the first six months of 2018 and 2017, respectively. G&A expenses for the first six months of 2018 were $153 million and for the first six months of 2017 were $122 million, with the difference almost entirely related to the increased equity compensation expense resulting from the stock price increase.

Taxes other than on income of $75 million for the first six months of 2018 were $11 million higher than the same period of 2017 primarily due to higher property taxes as a result of commodity price increases. Exploration expense of $14 million for the first six months of 2018 was $2 million higher than the same period of 2017.

Capital investment in the first six months of 2018 totaled $309 million excluding JV capital, of which $209 million was directed to drilling and capital workovers.

Cash provided by operating activities for the first six months of 2018 was $234 million and free cash flow was $(75) million after taking into account capital that was funded by BSP.

2018 Capital Budget

With stronger expected cash flows from commodity price improvements and increased production from the Elk Hills transaction, combined with synergies resulting from the transaction, CRC increased its 2018 capital program to a range from $650 million to $700 million, which includes approximately $100 million or more of JV capital, subject to further adjustments based on commodity prices in the second half of the year and other developments. This is an increase from its previously stated range of $550 million to $600 million. The incremental investment builds on the momentum created to increase second half 2018 production with a more substantial effect in 2019. The additional capital will primarily be deployed to drilling, workovers and facilities in the San Joaquin, Los Angeles and Ventura basins. As expected, CRC received funding of a third tranche of the BSP capital in the second quarter of 2018.